Razor USA produces a variety of electric scooters. Assume that Razor has just received an order from a customer (Pulse Cycles) for 400 Power Core scooters. The following price, based on cost plus a 60% markup, has been developed for the order:

Manufacturing Costs:

Direct Materials- $9480

Direct Labor- $6,800

Factory Overhead- $12,640

Total- $28,920

Markup (60%)- 17,352

Selling Price- $46,272

Pulse Cycles rejects this price and offered to purchase the 400 scooters at a price of $36,000.

The following additional information is available:

- Razor has sufficient excess capacity to produce the scooters.

- Factory Overhead is applied on the basis of direct labor dollars.

-Budgeted factory overhead is $6,400,000 for the current year. Of this amount, $4,800,000 is fixed. Of the $12,640 of factory overhead assigned to the Pulse Cycles order, only $3160 is driven by the special order; $9,480 is a fixed cost.

- Selling and administration expenses are budgeted as folllows:

Fixed: $2,400,000 per year

Variable: $10 per unit manufactured and aold

a. The President of Razor wants to know if he should allow Pulse Cycles to have the scooters for $36,000. Determine the effect on the profits of accepting Pulse Cycle's offer.

b. Assume Razor is operating at capacity and could sell the 400 scooters at its regular markup. Determine the opportunity cost of accepting Pulse Cycles offer. Determine the effect on profits of accepting Pulse Cycles offer.